Here is what really happened to the dwemer ,
The Dwarves were at war with another race of mer, the Chimer, In 1E 122.The Falmer, or snow elves at the time sided with the dwemer but were soon to realize it was a mistake but it was too late. After many battles, Mages of the dwemer tried to tap into the heart of Lorckhan, The Aedric god who created the realm that contained Nirn. At the battle of red mountain, the powers from the heart made all the Dwemer dissolve into thin air.
The daedric artifact in skrim known as Keening was the tool used to harness the powers from lockhans heart. Yagrum Bagarn is the only known living dwemer. He was to believed to be the champion of a daedric prince and was visiting another realm. He came back to the realm that contained nirn only to find his race gone, and was cursed for eternity. He was immortal, but would always feel pain.
Not really. You're sorta right, but also have plenty of wrong right there.
Lets start with the main thing, the disappearance
"Kagrenac was devoted to his people, and the Dwarves, despite what you may have read, were a pious lot-he would not have sacrificed so many of their golden souls to create Anumidum's metal body if it were all in the name of grand theater. Kagrenac had even built the tools needed to construct a Mantella, the Crux of Transcendence."
Okay. So now everyone can stop posting about where the Dwarves went. I TOLD YOU EIGHTY YEARS AGO.
Filthy with it, I am.
To start, the dwemer became the golden skin of the Numidium. What lead to this event was this. The Chimer found out about Kagrenac, and declared war on the dwemer. Nerevar pushed the dwemer back all the way to Red Mountain, where, in an act of desperation, Kagrenac went along with his plan, and caused the entire dwemer race to be absorbed by the Numidium and become its golden skin. Also, this was a Morrowind related incident.
The dwemer outside of Morrowind did not fight in The War of the First Council
The tools, Sunder and Keening, with the gauntlet to use them, Wraithguard, are not daedric artifacts.